New Delhi: A recent survey undertaken by the Indo-German Chamber of Commerce (IGCC) has revealed that the global economic crisis impacts the business of most German investors in India only moderately. Managers expect the domestic economy to recover soon, profess great faith in India’s market potential and want to increase their investments here. Besides, many German companies plan to ramp up their offshoring activities and want to build up more R&D capacities in India.

In the survey, managers representing 100 companies describe India as a core growth market in which they have strong confidence, despite the present economic downturn. But they also underline weaknesses in the investment climate which the government should address.

“Our survey confirms that India weathers the global crisis reasonably well,” explains IGCC Director General Bernhard Steinruecke. 61 percent of respondents only feel moderately affected by the global economic turmoil. 18 percent say they are not affected at all. “India proves a shelter in the storm,” observes Steinruecke. “Compared to more traditional markets, German companies expect above average results here in 2009.” And managers look to the future with great confidence: 82 percent see good or excellent market potential for their products.

This is the main reason why two out of three companies want to further increase their investments in India over the next three years. Until 2011, 24 percent of all German firms surveyed plan to lift their new investments in India strongly above the level of the previous three years. 37 percent foresee a moderate investment increase until 2011. 29 percent plan to keep their fresh investments over the next three years comparable to the sums they had deployed between 2006 and 2008. During that period, German FDI into India had accelerated sharply.

“Our survey confirms that the recent spurt in German FDI marks the beginning of a strong and sustainable trend,” says IGCC Chief Economist Oliver Mueller. “In the globalization strategies of German multinationals and SMEs, India has clearly moved center stage.” The present downturn in the domestic economy is seen as temporary by managers. “Their unwavering investment commitment shows that India plays an increasingly important role for German companies as a source of growth in an otherwise growth starved world,” concludes Mueller.

Balance sheets provide a solid backing for optimism: Most surveyed managers look back at an extraordinary year. 43 percent could increase revenues by 20 percent or more in 2008. 24 percent boosted sales by ten to twenty percent. In spite of that high base, a quarter is confident to achieve sales growth of 20 percent or more also in the current year. More than a third expects ten to twenty percent sales growth in 2009. Only 13 percent worry about declining sales. The same small number expects receding profits. Almost half want to maintain profits on last year’s levels. And 39 percent expect a profit increase in the current year.

Despite the optimism of German managers, the survey reveals considerable scope for improving India’s investment climate: Only one in four considers it as good. Bureaucratic hurdles are the most often cited problem for doing business (by 63 percent of all respondents), closely followed by infrastructure bottlenecks (57 percent) and corruption (55 percent). The main other negative factors are high import tariffs, legal and regulatory uncertainties and India’s tax system.

“By addressing these issues India’s new government has an opportunity to clear the way for a sustained increase in FDI,” underlines IGCC Director General Steinruecke, adding: “Domestic companies stand to benefit even more from a better investment climate.”

Overall, the survey results confirm the Chamber’s view that this is the right time to commit to India. “For long-term investors, 2009 presents a good opportunity to set up or expand operations here,” says Steinruecke and explains: “The cost inflation of recent years has stopped, skilled employees have become easier to find, while the outlook for high economic growth remains excellent.”

Similar factors underpin India’s rising role as resource for German companies: One out of four surveyed already use India for offshoring activities or supports its global R&D efforts with local development centers here. Another fourth considers doing the same in the near future. “Especially as a global development hub for products aimed at Emerging Markets, India is bound to emerge as a preferred location for German companies”, predicts Steinruecke.

The data was collected in an anonymous survey of IGCC’s German member companies at the end of April, before the election results boosted investor confidence further. 100 of 800 invited companies participated in the survey, answering 22 detailed questions ranging from the economic climate to balance sheets and investment strategies. The number of responses and the breakup of sectors and company sizes among respondents make the survey representative for German investor sentiment in India.